Income Tax Rates and Tax Thresholds
The rates and thresholds for UK tax year 2023/24 remain the same as the previous tax year 2022/23 and are detailed below:
- 20% basic rate on taxable income up to £37,700
- 40% higher rate on taxable income over £37,701
- 45% additional rate on taxable income over £125,140
The personal allowance also remains the same in 2023/24 as it was in 2022/23 at £12,570. This portion of taxable income is “tax-free”, in other words, tax-free personal allowance.
For people who earn over £100,000, the personal allowance will start reducing by £1 for every £2 above the £100,000 limit.
Therefore, the personal allowance for someone earning £125,140 would be lost completely.
However, there are some ways in which you can reduce the shrinkage of the personal allowance and in some cases, protect it entirely.
Options such as making gift aid contributions to qualifying UK charities and making additional pension contributions can reduce your total income and protect the allowance.
Allowances in Self-Assessment Tax Return
There are various allowances which come into play when it comes to producing your self-assessment return. Some of these are briefly explained below:
Marriage Allowance
Married couples and civil partners may be eligible to claim the marriage allowance.
This tax bill allows couples to transfer a portion of their personal allowance between them, resulting in a reduction in their tax bill.
10% of the spouse’s or civil partners’ tax savings or personal allowance can be transferred to the other.
This is particularly worthwhile when one spouse or civil partner has insufficient income to utilize their whole personal allowance.
To be eligible, the transferor must earn below £12,570 and the transferee must be earning within the basic rate band (£12,571 – £50,270).
Blind Person’s Allowance
If you are registered as blind or severely sight impaired, you may be entitled to claim the Blind Person’s Allowance. For 2023/24, this allowance will remain at £2,520.
Trading Allowance
If you have a self-employed income of less than £1,000 per year, you may be eligible to claim the trading allowance.
This means that no tax is payable on this income and there is no need to report it on your self-assessment return.
However, if you wish to claim expenses against this income, then you must report it.
Personal Savings Allowance
Savings interest received (excluding from ISA’s) is a source of taxable source of income. You do however have a tax-free allowance, detailed below:
Basic rate taxpayers £1,000 tax free
Higher rate taxpayers £500 tax free
Additional rate taxpayers £0
Dividends Allowance
Regardless of what rate of income tax or personal taxes you pay, you will be entitled to a dividend allowance.
In 2023/24 the dividend allowance has been reduced to £1,000 tax-free. The allowance is dropping again from 2024/25 to just £500.
The rates of tax for dividends in 2023/24 are below:
Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%
These rates are expected to remain the same in 2024/25.
Child Benefit Charge (HICBC)
Persons in receipt of child benefits who earn over £50,000 will be liable to the HICBC.
This applies even if one spouse or partner receives the child benefit but does not earn over £50,000, yet the other does.
The charge is equal to 1% for every £100 of income paid, between the £50,000 – £60,000 threshold.
So, if you or your partner earn over £60,000, you will have to repay the whole amount of child benefit.
Some people may be unaware that if they are faced with this situation, they will be required to register for self-assessment and file a tax return to avoid any penalties.
It’s worth a note that from 2024/25, this threshold is being increased to £60,000 – £80,000, and the chargeable rate will be halved so will equal 1% for every £200 of income between the thresholds.
Income Tax relief
Can be claimed as tax relief if the net income is lower than £50,000 or to reduce your liability. This and tax reliefs must be claimed in a tax return.
Inheritance Tax Planning
In 2023/24, the inheritance tax (IHT) threshold will remain at £325,000 per individual.
This tax code means that any assets above this threshold will be subject to a 40% tax charge on death.
However, there is an additional IHT allowance for the main residence which is being incrementally increased between 2017/18 and 2020/21. By 2021/22 it will be worth £175,000 per individual.
This means that married couples or civil partners could potentially pass £1 million to their heirs without incurring IHT charges.
To claim this additional allowance, the main residence must be inherited by direct descendants such as children or grandchildren.
If the value of the property exceeds £2 million, for every £2 above this limit, there will be a reduction of £1 to the residence nil-rate band.
It is therefore important to review your estate planning regularly and seek professional advice to ensure that you are taking full advantage of these allowances.
Furthermore, it is worth noting that gifting assets during your lifetime can also reduce the value of your estate and potentially reduce any IHT tax liability for your beneficiaries.
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